Good Media Moguls vs. Bad Media Moguls
What do good media moguls understand that bad media moguls don't? Jonathan A. Knee, who runs the media program at Columbia Business School, says the answer lies in how the moguls address the question of size. Knee is co-author of "The Curse of the Mogul: What's Wrong With the World's Leading Media Companies," published this month by Portfolio.
GUEST BLOGGER: Jonathan A. Knee
As a group, media moguls have been responsible for unprecedented value destruction over an extended period of time. Even in an era of financial meltdown and government bailouts, the more than $200 billion in asset write-downs during this decade by just three media conglomerates - Time Warner, Viacom (including its CBS acquisition) and News Corporation - still takes ones breath away.
But not all media moguls are bad moguls and not all bad moguls have always been that way.
What then distinguishes the good mogul from the bad mogul?
The single most important factor is the media mogul's relationship to the idea of bigness. Size does matter but not at any cost or size of any kind.
The poster child for the bad mogul is the megalomaniacal former investment banker Jean Marie Messier who tried to turn a French water utility into the ubiquitous global leader in all media by making over $100 billion in acquisitions. For Messier, who brought his company Vivendi Universal to the brink of bankruptcy, bigness was about absolute scale. The scope of his ambition is captured in the title of a Messier biography: "The Man Who Tried to Buy the World."
The poster child for the good mogul is another former banker who, after being fired, used his modest severance to finance an information business serving a narrow niche he had come to know well in his job working with the bond desk at Solomon Brothers. His name was Michael Bloomberg and over a couple of decades he built a $20 billion business with little outside capital and no large acquisitions. Although the company ultimately became very big indeed, his concept of bigness could not have been different from that of Messier.
Scale for Bloomberg and all wise moguls is a relative, not an absolute, concept. Achieving relative scale within a clearly defined, defensible niche is both more practical and more likely to yield a sustainable advantage. Fixed income traders, in Bloomberg's case, rather than the world's consumers.
Bloomberg's remarkable success did not rely on any of the characteristics bad moguls use to justify all manner of ill-conceived or overpriced investments and transactions. The company thrived without being the first-mover, without deep pockets, no high profile talent or established brands.
Ironically, most of the worst mogul offenders did not start out that way. The way they got rich in the first place was to follow a path very much like Bloomberg's. They focused on dominating rather unsexy, highly local or niche businesses that did not rely on expensive talent, brands or content.
Ted Turner was first the king of southeastern billboards before his love of "Gone with the Wind" led him to almost bankrupt his company with the purchase of MGM. Sumner Redstone was the leading northeastern movie theatre operator before his unwieldy media diversifications forced him to recently put these very theatres up for sale to satisfy debts. Rupert Murdoch was a famously effective operator of highly profitable local Australian newspapers before he poured billions into the high-profile Wall Street Journal that would need be written off within months.
The curse of the mogul, then, is this tendency to forget the essential qualities of the businesses that allowed them to become moguls in the first place. Many of the new businesses they diversified into - movies, music and, more recently, the Internet - have been a boon for their profiles and maybe their personal quality of life, but for decades have generated terrible returns for shareholders.
The media industry is now facing an unprecedented combination of secular and cyclical challenges. Unless the bad moguls fundamentally change their unhealthy relationship to the idea of bigness, things are likely to get much worse.
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